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June 26, 2022
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What are the Real Advantages & Disadvantages of Getting a Home Loan in India?

Buying a house is one of the biggest decisions of an individual’s life, as is applying for a home loan. Now, while most people apply for home loans to get the funds to buy their preferred properties, some are sceptical of applying for such loans.

To get a better understanding of whether a home loan would be beneficial, take a look at the advantages and disadvantages of applying for one:

Advantages of taking a home loan

  • Borrowers can get competitive interest rates

Financial institutions keep coming out with new home loan plans in order to entice more home loan borrowers. Since lenders compete against each other, it becomes possible for a borrower to find a lender that offers them a competitive home loan interest rate. Also, the interest rates of home loans are generally lower as compared to the interest rates of other types of loans.

  • Home loans provide sound financial cover

For a middle-class individual, affording a property without any financial support can get quite challenging. Most people apply for home loan plans in order to arrange the required finances. Lenders usually offer a period of 20 years to repay the loan, which gives the borrower a comfortable schedule to repay the loan in monthly instalments.

  • Capital appreciation can be beneficial

Over the years, real estate prices have consistently been on the rise. Financial experts suggest that a real estate property’s capital appreciation can actually be much higher than the interest that a borrower pays for a home loan. This will help them gain a profit if they sell the property in the future.

Disadvantages of taking a home loan

  • Borrowers cannot get tax benefits on the HRA component

An individual receives HRA (Housing Rent Allowance) from their employer, which is part of their salary. This component makes it possible for them to claim a tax deduction for the rent that they are paying. By buying their own house and living in it, they cannot claim HRA exemption. This means that the entire amount would be considered taxable.

  • Applying for a home loan is a huge commitment

Paying off monthly instalments for 20 years is a huge commitment, and this could be a problem if the borrower is financially unsteady. It is essential to be sure that a home loan is an affordable option before applying for one.

  • Lesser room for investment opportunities

When a large chunk of an individual’s monthly income is going towards clearing off home loan EMIs, it becomes difficult to leave any room for other investment opportunities. On the other hand, someone without the burden of a home loan is free to invest high amounts of their income since they do not have any home loan debt.

After going through the pros and cons of taking a home loan, one can make a sound decision for themselves based on their financial standing. Also, it is advisable to use a home loan EMI calculator before applying for the loan. This is because the home loan calculator can help in displaying the loan’s EMIs, which will help in understanding whether the loan is affordable or not.

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